I Won a Government Contract. How Do I Fund It?

You need working capital in place before you start performing. Between the ramp before anything is billable and the 30 to 45 days an agency takes to pay an invoice, most contractors fund 60 to 75 days of expenses out of their own balance sheet before the first dollar arrives.

That capital comes from progress payments where the contract allows them, and otherwise from one of four structures: mobilization funding for startup costs, a contract line of credit sized to the award, payroll funding for labor-heavy work, or invoice factoring once you have billed. Which one fits is decided by when you need the money relative to your first invoice, not by how much you need.

That is the short answer. The rest of this guide is the order the decisions actually arrive in, because the most expensive mistake is not choosing the wrong product. It is arranging capital after you have already started spending.

Why the gap exists

A commercial customer who pays slowly is a collections problem. A federal agency that pays in 45 days is the system working exactly as designed. The difference matters, because it means the gap is structural. You cannot negotiate your way out of it, and it recurs on every billing cycle for the life of the contract.

Stack the components and the timeline is unforgiving. Mobilization runs before performance begins. Performance runs a full billing cycle before you can invoice. The agency then has its own payment window, commonly 30 to 45 days, and longer if an invoice is returned for a formatting problem. Calendar time from award to first payment is routinely three to four months.

Calendar time is not the number you finance against, though. What matters is how many days of expenses you carry, and because you are not at full burn during the ramp, that figure is smaller than the calendar gap. For most contractors it lands between 60 and 75 days. The next section works through what that means in dollars.

The contractors who struggle are rarely the ones with bad contracts. They are the ones whose award was larger than their last one.

The ten steps, in order

1. Read the contract for payment terms first

Before anything else, find the payment terms, the invoicing schedule, and whether the contract permits assignment of payments. Most federal contracts include FAR clause 52.232-23, which allows it. That single clause determines which financing structures are available to you, so it is worth knowing in week one rather than week six.

2. Build a mobilization budget, dated by week

List every cost required before performance produces revenue: recruiting, onboarding, badging and clearances, equipment and vehicles, insurance and bonding, travel, site setup, and any subcontractor mobilization you will have to fund.

Then assign a week to each line. The dating matters more than the total. Two contracts with identical mobilization budgets have very different cash requirements if one front-loads equipment in week one and the other spreads costs across ninety days.

3. Calculate the payroll run-rate separately

Payroll is the least forgiving liability on a services award, because the workforce is the deliverable. Work out the fully loaded cost per pay period, including taxes and benefits, and count how many pay periods run before your first payment arrives. On a bi-monthly cycle with a 1 week payroll delay, that is roughly four payrolls you’ll need to be able to cover.

4. Add materials, subcontractors and equipment on their own timelines

These have different payment terms from your payroll and from the agency’s. A subcontractor who needs payment in 30 days while you wait 90 for the agency is a gap inside the gap. Map each one to the week the money leaves.

5. Find the peak weekly outflow

Total by week and find the highest cumulative point before the first payment lands. That number, not the contract value, is what your financing has to cover. Contractors routinely size facilities against the award and discover the constraint was a single heavy week in month two.

6. Match the structure to the shape of the gap

This is where the product decision gets made, and it follows from the timeline you just built rather than from a preference. The table below sets out which structure fits which shape.

7. Confirm the assignment mechanics

If the financing depends on payment being directed to the lender, the Assignment of Claims Act is the mechanism. It is not automatic. Written notice goes to the contracting officer, the disbursing officer, and the surety on any bonded work, and payments only redirect once the assignment is acknowledged. Start it early, because the acknowledgment runs on the agency’s clock, not yours.

8. Prepare the package before you apply

The fastest approvals are the ones where the contractor knows their own contract cold. What is typically requested is listed further down, and gathering it while you wait is faster than gathering it while you are asked.

Be specific about the two things that matter: how much, and by when. Vagueness is the single biggest source of delay, because “I need working capital” cannot be underwritten. “I need $180,000 by March 3 for equipment and initial staffing on a 24-month VA award” can be.

9. Put the facility in place before you win

This is the step contractors skip, and it is the one that costs the most. Financing arranged before the award is cheaper, faster and less stressful than financing arranged during a shortfall, because you are negotiating from a position where nothing is yet urgent.

10. Draw, perform, repay, repeat

With the facility live, you draw as costs come due and repay as the agency pays. On a revolving structure that cycle repeats for the life of the contract without re-underwriting each draw. The practical benefit shows up on your next bid: you can pursue a larger award knowing the capital to perform on it already exists.

A worked example

Take a $10 million award over five years, which is a $2 million base year. That is a realistic shape for a services contract, and the arithmetic is worth doing once because the answer surprises most contractors.

Base year value	$2,000,000
Billed monthly, evenly	$166,667
Per day of performance	$5,556
Exposure at 60 days	$333,000
Exposure at 75 days	$417,000

On a services award your cost to perform tracks close to what you bill, so the daily billing rate above is a workable proxy for the daily burn. The exposure comes from two things stacked on top of each other. First the ramp, where you are hiring, badging and equipping before anything is billable. Then the collection window, commonly 30 to 45 days from invoice to payment. Together that is routinely 60 to 75 days of expenses funded entirely from your own balance sheet before the first dollar arrives.

The number that matters

You need roughly $333,000 to $417,000 of working capital to perform on a $10 million award.

That is about 4 percent of the award value, and about 21 percent of the base year. Contractors routinely approach a lender asking for a facility sized against the contract, get told no, and conclude that financing is unavailable to them. The number they actually needed was a fraction of what they asked for.

Run the same calculation on your own award. Take your base year, divide by twelve for the monthly billing, divide by thirty for the daily rate, then multiply by the number of days between your first cost and your first collection. That figure, not the contract value, is what your facility has to cover.

Check progress payments before you borrow

On some contracts there is capital available that does not involve a lender at all, and it is worth checking first.

FAR Part 32 provides for progress payments: partial payment based on costs you have already incurred, rather than waiting until delivery or the end of a billing cycle. Where they apply, you are paid a percentage of what you have already spent, well before the work is delivered or invoiced.

They are not available on every contract. Eligibility depends on contract type, value and period of performance, and the contracting officer has to authorize them. But on a longer fixed-price award they can close a meaningful part of the gap before you finance anything, and a contractor who has not asked is leaving that on the table.

Ask the contracting officer directly, early. If the answer is no, or if progress payments cover only part of the exposure you calculated above, the structures below cover the rest.

Which structure fits which gap

The deciding question is when you need the money relative to your first invoice.

When you need it	Structure	What it is sized against
Before you bid	Financial capability letter	Proof of access to capital, for the responsibility determination
After award, before you can invoice	Mobilization funding, or progress payments if the contract allows them	Your dated mobilization budget, or costs already incurred
Through performance, mixed costs	Contract line of credit	The awarded contract and its receivables
Through performance, mostly labor	Payroll funding	Earned but unbilled revenue
After invoicing, waiting on payment	Invoice factoring	Approved agency invoices
Supplier payment on a goods order	Purchase order financing	The confirmed purchase order
Contract-specific equipment	Equipment financing	The asset itself

Most contractors on a first large award need two of these rather than one: mobilization funding to start, transitioning into a contract line or payroll funding once performance begins and receivables start to build.

What you will be asked for

The list is shorter than a bank’s, because the underwriting looks at the award rather than three years of history. Expect to provide:

• The signed contract or award letter, including the statement of work
• Your mobilization budget and projected cash flow for the contract
• Recent financial statements and an accounts receivable aging report
• Details of any existing lender relationships, liens or UCC filings, which determine whether an intercreditor agreement is needed
• Your SAM.gov registration, active and current, with your CAGE code
• Invoicing history: how you bill the agency and what has been paid to date, if performance has begun

What underwriting actually looks at

Contract-based underwriting centers on the award, the paying agency and your receivables rather than three years of financial history. That is why it moves in days rather than weeks of committee review, and it is why leading with financial statements instead of the contract slows down a process built to move on the award.

Expect questions about scope, your capacity to perform, and the agency’s payment history with you. Once approved, the facility gets structured to your situation: advance rate, facility size, draw mechanics, and repayment tied to agency payment. If you already have a bank line, this is the point where an intercreditor agreement is negotiated so the new capital sits alongside it without disturbing senior positioning.

Where contractors get this wrong

Sizing against the contract instead of the gap. A $4 million award does not need $4 million of financing. It needs the peak cumulative outflow before the first payment, which is usually a fraction of it.

Forgetting subcontractor mobilization. Your subs have the same cash problem you do, and some will need paying before you are paid. Their cash problem becomes your performance problem.

Assuming assignment is automatic. It is not. Notice must be properly prepared, delivered and acknowledged before payments redirect, and on bonded work the surety has to be included.

Funding mobilization out of operating cash. On the assumption it will be replenished quickly. It will be replenished on the agency’s schedule, not yours, and in the meantime it is not available for anything else.

Arranging financing after mobilization begins. Every option is faster, cheaper and less stressful arranged at award than arranged mid-performance with payroll due on Friday.

Ignoring the bid stage. If a solicitation requires proof of financial capability, that letter belongs in the proposal, not after the award. By the time you have won, the moment to use it has passed.

Treating it like a bank application. Leading with three years of financial statements instead of the contract slows down a process that was built to move on the award. Bring the contract first.

Common questions

How soon after award should I arrange financing? Before you spend anything on mobilization, and ideally while you are still bidding. A facility arranged at award is underwritten calmly; one arranged during a shortfall is not.

Can I get financing if this is my first government contract? Often, yes. Contract-based structures underwrite the award and the agency’s obligation to pay rather than your operating history, which is what makes them available to contractors whose balance sheet has not caught up to what they have won.

What if I am a subcontractor rather than the prime? Financing is generally based on the subcontract and the prime contractor’s payment history rather than a direct relationship with the agency. The structure differs; the availability usually does not.

Does taking financing affect my contract with the agency? An assignment of claims is a documented, routine process. The agency is notified and payment is directed accordingly. It does not change your obligations under the contract or the agency’s evaluation of your performance.

How much working capital do I actually need? The peak cumulative outflow between award and first payment, plus a margin for the invoice being returned once. Steps two through five above are how you calculate it.